Diversification strategy (continued)

These adjustments to our long-term asset mix build on the increasing diversification of the Plan’s portfolio since 2004. In particular, they will deepen the Plan’s commitment to “alternative” investments, including real estate, infrastructure and private equity. Together these portfolios have grown to a combined value of 18.9% of the Fund at the end of 2010. When the new allocations are fully implemented, these portfolios will account for 45% of the Plan’s assets.

Alternative investments offer a number of advantages to the Plan:

• Returns from real estate, infrastructure and energy commodities have historically had relatively low correlations with public equity markets. As a result, these alternatives have the potential to partially mitigate the effects of future public equity market downturns.
• Real estate and infrastructure offer an effective match for the long-term obligations of the Plan and are expected to offer a partial hedge against inflation. They also provide a steady flow of income to help meet the Plan’s growing pension payments.
• While private equity investments typically involve more risk than public equities, expert in-house management of our portfolio offers the prospect of higher returns than public equities on both an absolute and risk-adjusted basis.
• Despite their high volatility in relation to the other asset classes held by the Fund, adding energy commodities to the asset mix actually reduces risk at the total fund level because of their historically low correlation with the Plan’s other holdings.